00:00I think what we're seeing more recently, it's really the reset, how quickly rates are moving
00:04higher. Everyone's been discussing what the magic number is. So 5% was a key level that people
00:10looked at, but it's this kind of jump up. Now, I will say historically, when the Fed raises rates
00:15for the first time, market tends to be somewhat weak near term. But as long as you don't move
00:19into recession, tend to rebound. That ISM number or the PMIM number yesterday was relatively strong.
00:24So we still think markets ultimately move up, but we're seeing kind of this retracement in
00:28valuations against the still strong earnings worth that we're seeing.
00:32So, I mean, a lot of folks are saying, don't freak out over the higher rates because we've
00:35got an economy that's really strong, nominal GDP, six-ish, whatever your Atlanta Fed is
00:41saying these days. So these rates are not unusual given that economic activity. Does that make
00:49any sense to you? Yeah, I do think, though, there's this tension between what do higher
00:53rates mean for valuations? How much does the Fed need to raise rates? And does that eventually
00:58cool down the economy? But I will say, you know, this is a new, if you look under the hood
01:02of the
01:02market, you know, the average stock equal weight index down about five or six percent, small caps
01:08are down, anything kind of interest rate sensitive as far as utilities, REITs, retail already have
01:14been hit. So the good news, I will say, is at least we've seen a pretty good reset below the
01:18surface already. We're still in this seasonal week period, but eventually, you know, we need rates
01:23to stabilize. We don't need them to come down a lot. I think eventually the markets will get its
01:28level in this kind of little choppy period. Anna Wong had a brilliant tweet yesterday with the two
01:32views of higher interest rates. I happen to be in the view, I think everyone knows, that I'm sorry,
01:38it's this extraordinary nominal GDP. Do we, must we bring down nominal GDP? And if so,
01:47how? I mean, the financiers of Manhattan have a way to do that. But there's the rest of the world
01:53out there the truest represents. How do we bring down our boom economy?
01:58Yeah, it's, well, right now, I think, Tom, with that number yesterday, you know, let's think about
02:02where we are. We have oil prices near $100. We have interest rates that have moved up. And what
02:08are we seeing? We're still saying the economy is still resilient and that whatever that magical
02:12neutral rate is higher than people expected. But there are parts of the economy that this has hit.
02:18As I mentioned, home building stocks hit. Housing market kind of frozen here as well. So yeah,
02:24I think it's an interesting question, Tom. Also, we're really seeing no signs of a slowdown in this
02:29AI build out, right? Probably more than a trillion dollars of spending next year. So it's going to be
02:34tough with this blunt tool of rates to slow down the AI side. So I think we're going to continue
02:39to
02:39have maybe this two-speed economy. You've got a cool chart in here talking about market breadth.
02:44Yep. And you're saying market breadth is approaching washed out levels. What do you
02:48mean by that? You know, we're not quite there yet. But underneath the surface, even though the S&P is
02:52only, you know, one or 2% out of, from an all-time high, you know, beneath the surface, it's
02:58been much
02:58weaker. The percentage of stocks above the 50-day moving average, a fancy term for, you know, how many
03:04stocks are participating, is down to about 30%. Historically, when you get to where we're at here, we start to
03:10approach maybe somewhat of a washout. Really, I say sub-20 would be a better washout.
03:14for us. And what does that mean? That just means that people are selling things indiscriminately,
03:18and that's where markets tend to bottom. We haven't seen that since Nixon was present.
03:22I mean, even when we have a correction now, it's sort of sanitized. Paul, when was the last time we
03:28had equity stress? 22. You know, Friday, you have the second Budweiser because it's so stressed.
03:33Yeah. I mean, we haven't had a real correction, right? Yeah. Most of the corrections have been
03:37rotational. And we, you know, typically in every year, we'd see on average about three corrections
03:41of 5% or more. We've had one this year. Okay. So, listen, I think this could likely go a
03:46little
03:46bit deeper, but the downside in our work based on even valuations, probably 5% to 8%. So, I think
03:51the bull market's intact, though. I'm not focused this morning. No? You know, no. Alexiala's playing
03:56in Singapore right now. Oh, okay. She's doing well against Prozarova. She's one, she's serving
04:02for set. Women's tennis. For set. Women's tennis. Philippines. It's like total mental. Yep.
04:07Like, Alexiala thing. I know. You're all in. So, we're at the open. I mean, I got to go
04:11to save the marriage. Yep. You know, it was amazing. Keith, it was outrageous. We're sitting
04:16there, and the number one guy in the world pulls out a shot because he's diabetic. Zevrev.
04:22Oh, that's right. I forgot about that. He's like the world class. He's like 6'7". He hasn't
04:27had a second serve in like two years. But it brings us to, Keith, what you're living with
04:32Madeline, your daughter, with type 1 diabetes. You've been very visible about this. Explain to
04:38us with your charity here, Madeline's charity that you're doing, the day-to-day grind for people out
04:44there, you know, worldwide living this, the day-to-day grind and dealing successfully with type 1
04:51diabetes like Zevra, the tennis player. Yeah, well, one, I appreciate you bringing it up. I wasn't
04:55expecting that question today. But yes, it's my daughter. She's 9 years old. Madeline, she's a
05:01sassy little 9-year-old. You can tell from the picture she's a problem. Yeah, she's a rocket
05:06ship. So, she was diagnosed when she was 4. And we have a graph of, I can look tick by
05:13tick
05:14how she's doing. And it's highs and lows. People think it's just food. It's not. There's 40 different
05:18factors that affect things. And if she goes too low, that's really, she could be in the hospital.
05:24If she goes too high, she could also have issues as well. So, it's a 24-hour thing that
05:29we have to follow. The speech that was made at the U.S. Open was uplifting. It's really
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